ACO Incentives Around the Bend for Medical Practices: Plan Now or Wait and See?

Laurie Morgan June 7th, 2011

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Learn how to create ACOs and the impact they will have on your medical practice and medical billing

Accountable Care Organizations (ACOs) are the latest element of the Affordable Care Act (ACA) to stir lots of attention and buzz among physicians and others in the medical community.  They’re on everyone’s minds – but, with many aspects of ACOs and their economic potential still fuzzy, we anticipate that many doctors will find watchful waiting to be their best short-term option.

ACOs are viewed by some as simply a new incarnation of HMOs – and there are indeed similarities.  Like HMOs, ACOs aim to improve both cost-efficiency and quality of care by defining a network (i.e., a team) of physicians responsible for every aspect of a patient’s care.  The ACA aims to encourage physicians and hospitals to join forces towards this goal with financial incentives for ACOs.

However, there are many notable differences as well.  First and most obviously, while any group of providers can form an ACO to improve care and efficiency, the ACA’s lever for encouraging ACO formation is Medicare.  The ACA enables ACOs to contract with the CMS to report on their collective results in order to be reimbursed for a portion of the savings in Medicare fees billed. This means the ACO shared savings opportunity won’t apply to your practice at all (at least not for now) if you’re not a Medicare provider.  

Requires a minimum of 5,000 Medicare patients

The ACO contracting structure also requires a minimum of 5,000 Medicare patients under primary care from the ACO.  So while primary care physicians are at the center of the ACO model, this relatively large panel requirement will likely keep most small primary care practices on the sidelines for the initial three-year program, unless they team up with a larger group or hospital.  And, since primary care physicians can only be part of one ACO, they have every incentive to tread (and choose) cautiously.   (Specialists, on the other hand, can be part of multiple ACOs – but, given technology and reporting requirements, as well as possible differences in shared savings distribution across ACOs, even specialists will want to evaluate ACO opportunities carefully.)

Like the Medicare patient minimum, the technology requirements of the ACO program will also favor larger groups. The need to track ACO-driven savings requires sophisticated technology above and beyond the meaningful use standard for EHR adoption.  This hurdle alone could prevent all but the most advanced groups (such as those already piloting ACO programs) from participating in the initial three-year contracting opportunity.

Another notable feature of ACOs is their relatively flexible structure. The proposed rule from CMS encourages providers and hospitals to join forces to form ACOs, but gives the members of the ACO a great deal of discretion in structuring their organization.  This is both good news and bad news:  ACOs will need to decide everything from their leadership structure to their compensation schemes to the way they’ll apportion earned rebates from the government – and, once they decide on their preferred structure, they’ll need to get CMS approval to qualify for the incentive program.  As with the needed technology investment, complex administrative start-up issues will likely inhibit the creation of brand new ACOs in the short term.

Perhaps most notably, the current proposed rule for ACO contracts requires participants to take on downside risk as well as upside potential.  More than anything else, this aspect of the ACO program will likely dissuade all but the best-positioned existing groups from joining initially.   And, it’s worth noting that this is probably just what the government intends: it has been widely reported that the CMS hopes that somewhere between 1.5 million and 4 million of Medicare patients will be covered under participating ACOs.  This amounts to only about 5% of the total Medicare population.  While not technically a pilot program, the initial three-year contracting opportunity for ACOs will most likely look like a pilot to the majority of providers who’ll be watching to see how the first movers do and deciding how best to participate as the program matures.

Laurie Morgan is a management consultant with Capko & Company. She specializes in marketing, management and technology for medical practices and blogs about practice management issues at . Laurie has a BA in Economics from Brown University and an MBA from Stanford.

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